Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
By
Adekola Ali
ABSTRACT
This research work entitled Assessment of Performance Measurement in
Business Strategy Implementation Among Companies in Kaduna Town;
reports the impact of effectiveness, efficiency, client and employee satisfaction,
research and development, and a firms corporate social responsibility on a firms
performance. The relationship of these variables to the success of business strategies is
also reported in this work. The research looked at problems that are usually faced in
the various approaches used in assessing a firms performance. It also carried out a
comparative analysis of both quantitative and qualitative performance of firms. Samples
from 15 private limited liability companies and 15 public limited liability companies were
selected using the random sampling technique for analysis. The Regression and ChiSquare techniques were used to verify that there is no significant relationship between
financial ratios and business strategy. The techniques were also used to prove that
there is no significant relationship between a firms production effectiveness and its
business strategy amongst other hypotheses. The research work however revealed that
most staff members at the lower level of the firms are not involved in the development
of various strategies, thus making it difficult for them to the implementation. The
researcher
recommends
interactive
process
of
thought,
participation
and
Table of Contents
Page
Chapter One
1.1
1.2
1.3
1.4
Research questions
1.5
Research hypotheses
1.6
1.7
1.8
Delimitation of study
1.9
Definition of terms
Chapter Two
10
Literature review
10
2.0
10
2.1
12
2.2
14
2.3
18
2.4
Competitive strategies
21
2.5
25
2.6
29
2.7
30
2.8
36
2.9
40
3
2.10
41
2.11
42
2.12
46
2.13
51
2.14
52
2.15
57
2.16
66
2.17
Levels of strategy
74
2.18
80
2.19
Strategic analysis
82
2.20
93
2.21
96
2.22
101
2.23
103
2.24
105
2.25
107
2.26
112
2.27
113
2.28
Strategy choices
114
2.29
Expansion strategy
115
2.30
Retrenchment strategy
116
2.31
Combination strategy
117
2.32
121
2.33
124
4
2.34
127
2.35
129
2.36
131
2.37
143
2.38
144
2.39
145
2.40
146
2.41
Leadership
149
2.42
Financial variables
150
Chapter Three
155
3.0
Methodology
155
3.1
155
3.2
156
3.3
157
3.4
157
3.5
158
3.6
Regression techniques
160
3.7
167
3.8
167
3.9
167
3.10
168
3.11
169
3.12
Test of hypotheses
169
5
3.13
Instrument used
170
3.14
171
3.15
172
Chapter Four
174
4.0
174
4.1
Introduction
174
175
4.2
204
4.3
Regression analysis
205
4.4
209
4.5
Test of hypotheses
209
Chapter Five
221
5.0
Discussion of results
221
5.1
221
5.2
221
5.3
230
5.4
232
Chapter Six
6.0
Summary of findings, conclusions and recommendations
234
234
6.1
234
6.2
Recommendations
237
References
239
6
CHAPTER 1
1.1
depends
on
its
performance.
Managements
performance
measurement
to
evaluate
overall
the
health
use
of
organization.
1.2
Lawrence and Glueck (1987) observed that distortion could affect the
financial variables performance. They also noted that more recently the
earning per share has come under unfavorable scrutiny because earning
can be manipulated (by cutting out research and development, selling
off assets and liquidating inventory). Unfortunately, these manipulations
that have long-term impact on firms and their strategies are ignored.
The need for the search for more variables especially qualitative
variables that impact on business strategy and performance has
informed this study. The study therefore used some selected companies
in KADUNA, Nigeria for this investigation. Also, the assessment of these
variables in measuring performance will assist business strategist in
making sure that safe and sound strategy is based on adequate
understanding of these variables.
2.
3.
4.
5.
1.4
RESEARCH QUESTIONS
1. Are there relationships between firms performance and business
strategy?
2. Do financial ratios have any impact on business strategy?
3. Are there any problems in measuring firm performance?
4. Why do some firms consider only quantitative variables in measuring
performance?
5. Why do some firms consider only qualitative variables in measuring
performance?
6. Will combining both quantitative variables and qualitative variables
produce better result in measuring performance?
11
1.6
12
13
14
Management:
The
process
by
which
an
organization
15
these objectives in the desired time scale implements the action and
assesses progress and results.
Strategic Planning: The systematic and formal creation of strategies
capable of making a very significant contribution in large, multi activity
organizations.
Stretching Resources: The creative use of resources, to add value for
customers, through innovation and improved productivity.
SWOT Analysis: An analysis of an organizations strengths and weakness
as along side the opportunities and threats present in the external
environment.
Synergy: The term used for the added value of additional benefits which
ideally accrue from the linkage or fusion of two businesses, or from
increased co-operation between either different parts of the same
organization or between a company and its suppliers, distributors and
customers. Internal co-operation may represent linkages between either
different division or functions.
Tactics: This is the strategy that determines what major plans are to be
undertaken and allocates resources to them.
16
CHAPTER TWO
LITERATURE REVIEW
2.0
Sisk Henry (1973) in his view stated that the study or definition of
management as a process should be based on three parts: first, the
coordination of resources; second, the performance of managerial
functions as a means of achieving coordination and third, establishing
the purpose of the management process. They clarified this process as:
1.
In
18
2.1
aspects:
Determination of basic long term goals and objectives,
Adoption of course of action to achieve these objectives, and
Allocation of resources necessary for adopting the course of
action.
19
2.2
2.
21
3.
4.
role
in
strategy
formation
is
played
by
the
5.
22
6.
The lead
7.
8.
9.
10.
strategy
formation
as
transformation
process
2.3
b.
c.
nature (one column for each state of nature). The matrix could be in
form of a pay-off matrix or in the form of an opportunity cost matrix.
In the case of the pay-off of each row and column represents the
pay-off or profit for a given strategy and its corresponding state of
nature. Each state of nature is assigned a probability, which identifies
the odds that such a state of nature would prevail. Typically, in many
organizational problems, the probabilities of various states of nature
are known by virtue of determining how frequently they occurred in
the past.
c. STRATEGIC DECISION MAKING UNDER UNCERTAINTY
The conditions of uncertainty make the decision making process
much more complicated. The decision maker or strategist has no idea
or knowledge about the probabilities of various states of nature and
hence the expected values of various alternatives cannot be
calculated. Such problems arise wherever there is no basis in the past
experience for estimating such probabilities. For example, in the case
of marketing a new product, it is difficult to make judgments as to
how much this product will sell in different geographical areas or
about probabilities of these predetermined quantities in these areas
in order to make profit.
a.
b.
max principle, which maximizes the maximum pay-off for each strategic
alternative. The strategist assumes that for each course of action, the
best state of nature will prevail, giving him the best of each strategy so
that he can choose the best of these best.
c.
and it minimizes the maximum regret of not making the right strategy
and uses the opportunity cost matrix to make the decision. For each
course of action, there are costs involved in choosing the opportunity of
having a different course of action after states of nature have been
known. These costs are really regrets of not choosing the best course of
action. Out of the maximum regret for each course of action, we choose
the minimum regret and the corresponding course of action.
d.
states of nature are equally likely to occur. This means that the
strategist does not have anyone outcome that is more likely to occur
than others. Hence, both are the case of pay-off matrix as well as
opportunity cost matrix, all states of nature have the same probability of
occurrence.
e.
COMPETITIVE STRATEGIES
Competitive strategy is the means by which organizations seek to
achieve and sustain competitive advantage.
Porter (1980) in analyzing competitive strategy introduced three broad
frameworks. These are competitive strategy in fragmented industries,
28
Services
Retailing
Distribution
Agricultural products
Creative businesses
component
distribution,
fabricated
aluminum products,
iii. High haulage costs: This is another reason why industries are
fragmented. High transportation costs limit the size of an efficient plant or
production
location
despite
the
presence
of
economic
of
scale.
30
31
Local laws: Local laws and tax system in Kaduna have forced some firms to
comply with standards that are unique to the local political scene, leading
to major source of fragmentation in some industry, even where the other
conditions do not hold. Local legislations have probably been a contributing
factor to fragmentation in industries.
2.5
1.
33
of
Porter (1980) further stated that industry can be fragmented not only
because of fundamental economic reasons, but because they are stuck
in a fragmented state. According to Porter industries become stuck due
to the following reasons:
Existing Firms Are Far Sighted: Even though firms have the resources to
promote industry consolidation, they may be emotionally tied to
traditional industry practices that support the fragmented structure or
unable to perceive opportunities for change. This fact possibly combined
with
the
lack
fragmentation
of
in
resources,
many
may
countries,
partly explain
and
industries.
the historical
In
many
2.6
attractive returns. To answer this question the firm must predict the
new structural equilibrium in the industry once consolidation occurs and
must then reapply structural analysis. If the consolidated industry does
promise attractive returns, the final question is, What is the best,
36
2.7
Exit Barriers
Crucial to competition in declining industries is the manner in which
capacity leaves the market. When there exist barriers in exit, the less
hospitable the industry will be to the firms that remain during decline.
39
There are often also hidden costs of exit. Once the decision to divest
becomes known; employee productivity declines and financial results
loose deteriorate. Customers quickly pull out their business, and
suppliers lose interest in meeting promises.
Porter (1980) continued by saying that sometimes exit can allow the
firm to avoid fixed investments it would otherwise have had to make for
example, requirements to invest in order to comply with environmental
regulation may be avoided, as may other requirement to reinvest capital
just to stay in the industry. Requirements to make such investment
promote exit, unless making them yields an equivalent or greater
increase in the discounted liquidation value of the firm, because they
raise investment in the business without raising profits.
41
For example in
Nigeria, if Nigerian Brewery should stop producing star larger beer, for
poor performance of the product in the market, it is going to affect the
overall image of the company. Exit may render shared facilities or other
assets idle, depending on whether or not they have alternative uses by
firm or can be rented in the open market. A firm terminating a sole
supply relationship with a customer may not only fore close sales of
other products to that customer but also hurt its chances in other
businesses on which it relied to supply key raw materials.
relative to the total, its divestment may strongly reduce the financial
credibility of the firm. Even though a write-off is justified economically
from the point of view of the business itself, it may negatively affect
earnings growth or otherwise act to raise the cost of capital. Small
losses over a period of years through operating the business may be
preferable to a single large loss from this standpoint. The size of writeoffs will obviously depend on how depreciated the assets in the business
are relative to their liquidation value, as well as the ability of the firm to
divest the business incrementally as opposed to having to make a once
and for all decision.
of
the
business.
Businesses
performing
poorly
2.8
(1980)
strategy
during
decline
usually
revolves
around
43
1.
Leadership:
The leadership
strategy
is
directed
at
taking
2.
demand pocket) of the declining industry that will not only maintain
stable demand or decay slowly but also has structural characteristics
allowing high returns. The firm then invests in building its position in
44
this segment. It may find it desirable to take some of the actions listed
under the leadership strategy in order to reduce competitors exit
barriers or reduce uncertainty concerning this segment. Ultimately the
firm may either switch to a harvest or divest strategy.
3. Harvest: In the harvest strategy, the firm seeks to optimize cash flow
from the business. It does this by eliminating or severely curtailing new
investment, cutting maintenance of facilities, and taking advantage of
whatever residual strengths the business has in order to raise prices or
reap benefits of past goodwill in continued sales, even though
advertising and research have been curtailed. Other common harvest
tactics include the following:
*
Without
businesses are hard to harvest because there are few options for
incremental expense reduction; an extreme example is one in which the
plant will quickly fail to operate if not maintained.
4. Quick divestment: This strategy rests on the premise that the firm
can maximize its net investment recovery from the business by selling it
early in decline, rather than by harvesting and selling it later or by
following one of the other strategies. Selling the business early usually
maximizes the value the firm can realize from the sale of the business,
because the earlier the business is sold, the greater is the uncertainty
about whether demand will indeed subsequently decline and the more
likely other markets for the assets, like foreign countries, are not
glutted.
Divesting quickly may force the firm to confront exit barriers like image
and interrelationships, although being early usually mitigates these
factors to some extent. The firm can use a private label strategy or sell
product lines to competitors to help ease some of these problems.
46
2.9
to a limited
extent
in product
development, however,
firms first foray overseas involves export or licensing, and only after it
has gained some international experience will it consider foreign direct
investment. Export or foreign direct investment will be present in
industries where competition is truly global. Major flows of exports
among many countries are a reliable sign of global competition, but
major direct foreign investment in an industry may not be.
Their
particularly
technologically
progressive
ones,
global
51
construction the firm moves its crew from country to country t build
projects; oil tankers can carry oil anywhere in the world; seismic crews,
oil rigs and consultants are also mobile in such industries, fixed costs of
creating and maintaining an organization and developing proprietary
technology can be readily spread over operations in many national
markets.
Global focus:
53
Niche:
This
strategy
identifies
countries
where
54
1.
of
multinational
companies
in
spreading
their governments may drop out, those firms that remain in global
industries may well behave differently.
55
National
recognition
and
protection
of
distinctive
assets
4.
5.
lessen,
competition
may
other
be
potential
reaped.
advantages
Sometimes
from
national
global
product
6.
Reduced costs
7.
8.
Disintegration of production:
i.
Strategic Uncertainty:
competitors,
characteristics
of
customers,
and
industries
ii.
iii.
Spin-offs Companies.
iv.
v.
First-time Buyer:
Buyers of the emerging industrys product or service are inherently firsttime buyers. The marketing task is thus one of inducing substitution or
getting the buyer to purchase the new product or service instead of
something else. The buyer must be informed about the basic nature and
functions of the new product. Right now, ethanol producers world over
are struggling to persuade motorist about the advantages of using
ethanol as substitute.
Problems Constraining Industry Development
Some factors affect development of emerging industry. These include
the following:
61
ii.
Absence of infrastructure:
iii.
This is another factor that affects emerging industries. With many newly
established firms, product quality is often erratic due to lack of
standards and technological uncertainty.
though caused by only a few firms, can negatively affect the image and
credibility
of
the
entire
industry.
For
instance,
when
mobile
iv.
Likelihood of Obsolescence:
currently available products. Buyers will wait instead for the pace of
technological progress and cost reduction to slow down.
v. Customers Confusion:
Emerging industries are often beset by customers confusion, which
results from the presence of a multiplicity of products approaches,
technological variations and conflicting claims and counter claims by
competitors. All these are symptomatic of technological uncertainty and
the resulting lack of standardization and general technical agreement by
industry participants. Such confusion can limit industry size by raising
the new buyers perceived risk of purchase. This customers confusion is
what is happening presently in the Nigerian telecommunication industry.
vi.
Regulatory Approval:
Unit costs
A . let technology
atrophy
Threatened Industry
b. Invest to lower
cost
Time
63
The diagram
2.15
i.
ii.
65
66
This transformation
Marketing
Human
resources
Production
process takes place in one way or another in all areas of the economy.
Customers
Suppliers
Accounting
Finance
MIS
67
Meeting customers
needs requires knowing what these are, having the night product and
making it available in the best way. Strategic marketing is an essential
aspect of organizational success. Products and services need to provide
customer benefits and they need to be at price and in a location where
customers will know about them and make the decision to buy.
compete successfully with its rivals in its market. All organizations have
to start with some capital invested in them, whether they are
restaurants or bookshop. A sole trader may approach a bank manager
to lend N500,000 to add to his own investment, or a major company
raising funds from the Nigerian capital market. The common feature of
these financial arrangements is that the people involved in making the
investment will expect a return. The key business ratio is the return on
capital employed which compares the profit earned to the amount of
long-term capital invested in the business.
The capital employed includes the capital of the company owners plus
any long-term liabilities. Investor will be looking for a consistent as well
as high return, while a low return on capital employed will indicate to
them that there are weaknesses in either the profitability or the
productivity of the business.
an
organization and its customers at a particular place and time for the
purpose of exchange.
overcome the main gaps of time and place that separate goods and
services from those who want to use them.
Channel length:
Manufacturer - wholesaler - retailer -customer
Middlemen
Channel Breadth:
70
Retailer
Retailer
Manufacturer
Retailer
Customer
Retailer
Retailer
Retailer
Source: Hannagan (2002 : 128)
Strategic managers are usually trying to create a less than perfect market
place where they have a competitive advantage. Their marketing strategy
is designed to differentiate the products of their companies so that
instead of having a large number of the same product available to
customers; there are a number of differentiated products. It can be
argued that a companys marketing attempts is to create a monopoly for
its products so that the company can control prices by controlling the
supply of the product. Hannagan (2002)
heard of a product/service before they can make use of it or buy it. The
process of promotion will be objective if it induces consumers to a point
where they demand a product and make a decision to buy.
Hannagan (2002) outlined this process as follows:
1.
2.
3.
72
4.
5.
Action: the closing of the sale may require the active involvement of
a sales person to remove any remaining doubts and to convert the
commitment of the consumer into action.
Formation of
strategies
Implementation
of strategies
Strategic
evaluation
Strategic Control
(2)
Setting objectives.
Formulation of strategies
a
c.
f.
Formulating strategies.
(4)
Activating strategies.
Operationalising strategies.
Reformulating strategies.
(1)
serve
as
yardstick
and
benchmarks
for
measuring
organizational performance.
(2)
(3)
environmental
opportunities
and
threats
and
corporate
(4)
through
procedural
six
sub-processes:
implementation,
project
resource
implementation,
allocation,
structural
organizational
structures
and
systems,
and
The
last
phase
implementation
of
of
strategic
strategies
76
evaluation
and
measures
appraises
the
organizational
77
To determine mission
goals, and values of the
firm and key delusion
maker
Enterprise
Strategists
Mission and
objectives
The general
environment
The Industry &
International
environment
Analysis and
diagnosis
Internal
factors
To consider
Values
Alternatives
& assure
Generic
strategy
alternatives
Choice
Resources and
structure
Policies plans
& Admin.
Strategy
choice
Implementation
Evaluation &
control.
(Feedback)
Source:Jauch & Glueck (1988)
(Feed forward)
78
Strategy
variations
(2)
problems
and/or
opportunities
and
assessing
down
the strategic
choices.
This
involves
generating
79
processes.
These
administrative
processes
must
be
ii)
iii)
iv)
v)
Strategy
implementation.
The
task
of
analysing
the
81
management
to
oversee
the
interests
and
operations
of
company.
Important
to
the
success
of
total
quality
At the Nigeria breweries, the quality program was redesigned with three
targets in mind: boosting customer satisfaction, cutting costs, and
reducing product introduction time.
The quality programme has two tongues defect prevention (with a goal
of two defects per billion by the year 2000) and cycle time reduction
decreasing the length of time required to compete a job. This quality
goal does not just apply to manufacturing, but to departments such as
finance as well.
For instance, in 1988, it took coca-cola eleven days to close its book
each month, but by 1993 it took two days.
how
will
the business
compete
83
within
its
market?
What
The
corporate level provides a set of guidelines for the SBUs, which develop
their own strategies on the business unit level. The corporate level then
reviews the SBU plans and negotiates changes if necessary.
84
Strategy
Corporate Office
SBU
A
Corporate Level
SBU
C
SBU
B
Business - level
Functional Level
Finance
Marketing
Operations
Personnel
Information
Kazmi: (2002) in agreement with Stoner (2000) explained that the SBUs
are involved in a single line of business. A complementary concept to
the SBU, is the Strategic Business Area (SBA), which is defined as a
distinctive sediment of the environment in which the firm does (or may
want to do) business
One relates to the organizational levels and the other to the strategic
levels. The organizational levels are those of the corporate, SBU and
functional levels. The strategic levels are those of the corporate, SBU
and
an
Apart from the three levels at which strategic plans are made,
occasionally companies plans at a level higher than the corporate level
these are called the societal strategy which is a generalized view of how
the corporation relates itself to society in terms of a particular need or a
set of needs that it strives to fulfill.
The decision maker must believe that the gap can be reduced. the
In all these instances, note that the various phases shown in fig 4 are
linked together. In effect, this gap analysis can occur at any stage in the
overall process. For instance, an internal analysis might reveal that the
firm is not currently capable of reaching the desired outcomes with its
current resources. It could try to build additional resources to reduce
the gap if management believes it can reduce the gap this way; if not,
this resource constraint could be a reason for resolving the gap
differential by altering desired outcomes. Thus strategic choice and
evaluation are ongoing in all parts of the model outlined in fig 4 and can
lead to strategic change, goal alterations, or changes in implementation.
According to Jauch and Glueck (1988), looking carefully at the three
conditions which must prevail before the gap will trigger action; you will
note that perception, motivation, and belief are involved.
88
gap Analysis
Disired Outcome
w
Ne
te
tr a
gy
Past strategy
Performance gaps
Ex
isti
n
gS
tru
ate
gy
Expected Outcome
Source: Jauch and Glueck (1998)
a.
b.
BCG MATRIX
(2)
(3)
ii.
High
Low
Question Marks
Cash cow
Dogs
The Matrix is divided into four cells. SBU in cell I are defined as Stars,
in cell 2 as Question marks, in cell 3 as cash cows, and in cell 4 as dogs.
BCG argues that these different types of SBUS have different long-term
prospects and different implication for cash accounts.
91
Dog: SBUs that are in low growth industries but have a low market
share are dogs. They have a weak competitive position in unattractive
industries and thus are viewed as offering few benefits to a company.
BCG suggests that such SBUs are unlikely to generate much in the way
of a positive cash flow and indeed may becomes ash hogs. Though
offering flow prospects for future growth in return, dogs may require
substantial capital investments just to maintain their low market share.
c.
Environment
(Opportunities
and threats
SWOT
analysis
RESOURCES
(Strengths and
Weaknesses
VALUE
E-V-R CONGRUENCE
Source John L. Thompson (1995)
Under this theory we have:
(a) Environment in which the following questions are asked;
i)
ii)
(b)
Values:
What will it feel like to work in the company?
Which value(s) are to be adapted or changed?
93
What will our major stakeholders expect from us in the future, and
how are we going to satisfy their changing needs?
(2)
What are the most valuable skills and capabilities, as well as new
opportunities to exploit using these capabilities?
This type of analysis, however it might be carried out, should allow the
organization to make decisions concerning future targets and actions
which will be required to achieve them.
d. GE NINE-CELL MATRIX
Another corporate portfolio analysis technique is based on the
pioneering efforts of the General Electric (GE) Company of the United
States supported by the consulting firm of McKinsey and Company. The
diagram below shows a typical GE nine-cell matrix. The vertical axis
represents industry attractiveness, which is a weighted composite rating
based on eight different factors. These factors are: market size and
growth rate; industry profit margin; competitive intensity; seasonality;
economies of scale; technology; and social, environmental, legal and
human impacts.
capability, and the caliber of management. As can be seen from the list
of the factors, good use can be made of the industry, competitor, and
SWOT analyses information for determining the weight age and rating
to assign to each factor. The two composite values for industry
attractiveness and business strength/competitive position are plotted for
each business in a companys portfolio.
denote the proportional size of the industry and the dark segments
represent the companys market share.
The nine cells of the GE matrix are grouped on the basis of low to high
industry attractiveness, and weak to strong business strength.
ZONE
STRATEGIC
SIGNAL
GREEN
INVEST/
EXPAND
YELLOW
SELECT/
EARN
RED
e.
INDUSTRY ATTRACTIVENESS
HIGH
MEDIUM
LOW
HARVEST/
DIVEST
PORTERS
FIVE FORCES
5.
Bargaining
power of
suppliers
POTENTIAL
ENTRANTS
Threat
of new
entrants
Industry
Rivalry
Rivalry among
existing firms
Threat of
Substitute
products or
services
SUBSTITUTES
Bargaining
power of
buyers
Buyers
Must strategy analysis, including porters five forces and especially the
Boston boxes, encourage companies to seek a dominant market
position, eflected in a high relative market share.
Support for this idea comes from the Strategic Planning Institutes
influential PIMS (profit impact of market strategy) studies in the 1970s,
96
(less
reliably)
cross-sectionally
between
companies.
Their
97
1960 Yen
75%
THE
IMPORTANCE
OF
THE
LINK
BETWEEN
STRATEGIC
99
Normal
growth
path
Contraction
Expansion
T
Expansion
T
TIME
The
economic activity, and the bold line shows the rises and falls of actual
economic activity. The period of time during which aggregate economic
activity is falling is a contraction or recession.
If the recession is
Peaks and trough in the business cycle are known collectively as turning
points. One goal of business cycle research is to identify when turning
points occur and how it affects business.
Dess and Miller (1993), also explained that the overall state of the
economy greatly influences the strategies and performance of various
industries and competitors within each industry. Some of the more
prominent indicators by which the health of an economy can be pledged
are growth in GNP, interest rate, inflation rates, saving rates, and
budget deficits/surprises. According to Dass and Miller, these indicators
are highly interrelated. The GNP represents the dollar measure of the
102
Every firm has strengths and weaknesses. The largest firms have
financial strengths, in comparison with smaller firms, but they tend to
103
move more slowly and may be less able to serve small market segments
effectively. No firm is equally strong in al its functions. For instance,
Nigerian Brewery may have superb marketing, events for its outstanding
production and product design, MTN Nigeria known for its outstanding
service and personnel policies, yet each of these firms is not strong
across the board within a company, each division has varying strength
and weaknesses. Oceanic Bank Nigeria may be strong in customer
service and weak in computers.
distinctive competencies are, and how to use these abilities now and in
the future. And it must determine whether weaknesses will limit
strategic options or identify weaknesses which can be overcome. Unless
the executives are fully aware of their competitive advantages, they may
not know the opportunity that is likely to lead to the greatest successes.
Thus, managers/executives conduct regularly environmental analysis so
that decisions can be made about how to use or add strengths and
minimize weaknesses for competitive advantage.
Jauch and Glueck (1998) outlined the internal factors for strategic
analysis. These factors are:
(a) Marketing and distribution factors: Marketing and distribution means
moving goods or services from the producer to the customer. It starts
with finding out what customers want or need and whether the product
and/or service can be sold at a profit. This requires conducting market
research, identifying the market, developing product, testing customer
reaction, working out production and cost, determining distribution and
104
Vast economic and social changes have made marketing strengths more
important for most firms. The recession in the early 1980s in Nigeria
and demographic and life style shifts created problems for those who
pursued mass marketing and brand loyalty as the keys to marketing
success. Likewise, intense international competition, rapid technological
change, and deregulation have created new weaknesses in typical
marketing approaches. The changing nature of competition requires a
close look at marketing strengths and weaknesses in order to build
competitive advantage in increasingly
fragmented
markets. The
acquisition is called for to out the existing line or create new ones. A
gap in distribution might lead to efforts to build intensity, exposure or
coverage. If usage gaps exist, price or promotion can lead to increased
frequency of purchase, or new uses or users (customers) can be found
for product.
Just as important as these questions are other areas focus on how the
marketing organization functions. For instance, the organization may
have the ability to accumulated better knowledge about its market than
the competitors, if properly used, this can be a major advantage with
respect to assessing the need for changes and determining their timing
similarly, if the marketing organization maintains good relationship with
production the translation of market place needs into timely creation of
goods and services can lead to a competitive edge.
106
Research on negative
107
108
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
109
Corporate Marketing:
Guiltinan and Paul, (1991) defined corporate marketing planning as the
process by which on organization sets its long term priorities
regarding products and market in order to enhance the value of the
overall company. Two kinds of top management decision are involved in
corporate marketing planning cooperate strategy and product mix
strategy.
111
From the middle managers view, the product mix strategy provides
guidance concerning top managements expectations. Knowing the role
the product is expected to play is very important in the overall corporate
picture to the development of marketing strategies and programs.
113
products
in
its
current
markets.
Typically,
market
the
environment
remains
supportive
of
growth
and
profit
opportunities, a firm may want to stick with its basic business. But
even in growing or highly profitable markets, some adjustments to
the product offering will usually become necessary because of
environmental changes.
(ii)
(iii)
For example, the managerial and marketing skills required for forward
integration into retailing of clothing are far different from those involved
in the manufacturing of clothing. Similarly backward integration may
back fire if a firm cannot produce its own supplies efficiently.
116
(b)
(c)
production technology.
5. Consolidation strategies:
ii.
the changing
market
2.
Growth: The product is now more widely known and sales grow
rapidly because new buyers enter the market and perhaps
because buyers find more ways to use the product. Sales growth
stimulates many competitors to enter the market, and the major
marketing task becomes to build market share.
3.
4.
Limit
Sales
i
Introduction
ii
growth
iii
Maturity
iv
Decline
Time
Stability strategies.
(II)
Expansion strategies.
2.
approach, nor does it mean that goals such as profit growth are
abandoned. The stability strategy can be designed to increase profit
through such approach as improving efficiencies in current operations.
This strategy is typical for firms in a mature stage of development, or
mature product market evolution.
(I)
No change strategy
(II)
Profit strategy
(III)
2.
ii.
iii.
iv.
v.
ii.
2.
ORGANIZATIONAL CHANGE
Theory suggests that it may be necessary to institute some changes
with respects to different business units (such as grouping of several
units into one division). Many Nigerian companies especially banks have
an overseas division, which is basically product or technology based
and in which the overseas companies render the same services as the
Nigerian counterpart.
126
COST-REDUCTION STRATEGIES:
Luftman et al (1992) argues that in severe situations, cost reduction
strategies are often implemented at an early stage, as that may have
almost immediate effect. The managements need to examine the key
areas and attend to those areas in the first instance. In many companies
the key cost element is labour; that is; wages and salaries. An
immediate effect can be achieved by banning overtime and stopping
new recruitment. In the longer term, it may be necessary to reduce the
size of the labour force. This can be achieved through natural wastage,
early retirement, voluntary redundancy or, if necessary, compulsory
redundancy.
The severity of the crises will determine speed with which the shedding
of labour will need to be effected. In some businesses the materials
used in production can constitute a major cost factor. This is evident
where the a high- cost raw material is used, for instance gold, or where
a very large volume of a raw is used such as in the generation of
electricity. A reduction in this cost may be achieved through seeking
new sources of supply or by a redesign of the products which would
seek to reduce the volume of material. It might also be possible to use
an alternative material.
in the short term. Depending on the nature of the business, these would
include market research and developments.
revenue generating strategies are usually those which take the longest
time to have a significant impact on profitability, because most
frequently this is the part of the business which is the crux of the
problem and will be most difficult to turnaround and also because
expenditure is often required before extra income can be generated.
Some immediate effects may result from a sharp impetus to the selling
function, which would be achieved through increasing incentives to
salesmen and small alterations to the product. However, a long-term
128
Games Theory deals with decisions under conflict, and the objective is
to determine the rules of rational behavior of players in which each
player is trying to outsmart his opponent in a logical and optimum
manner. It is based upon the premise that the player in the game is a
rational and logical being who seeks to maximize his gain and minimize
his loss, realizing that his opponent will be similarly motivated.
zero-sum game. The second type is the non zero-sum game, in which all
pay-offs may not add up to zero. Additionally, zero-sum games
automatically become a non-zero sum game if the gains and losses are
measured in utility rather than quantified units.
2.
3.
4.
5.
6.
130
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
The first four of these mechanisms will lead to the creation of the
structure. The other six mechanisms are designed to hold and sustain
the structure. Collectively, we would refer to the six mechanisms as
133
134
Loewen J. (1997), Hill and Jones (1988) Jauch and Glueck (1998)
believe that implementation is necessary to spell out more precisely how
the strategic choice will come to be. Structural administrative
mechanisms which are compatible and workable need to be established
to reinforce the strategic direction chosen and provide guides for action.
A good strategy without effective implementation is not likely to
succeed. Closing the gap between ideal and expected outcomes requires
more than making a strategic choice. Mckinsey seven- s frame work
includes the following:
1.
over
competition,
improving
position
vis--vis
3.
Systems:
Style:
Tangible
evidence
of
what
management
considers
135
5.
about
individual
personalities
but
about
corporate
demographics.
6.
7.
Skills: A derivative of the rest. Skills are those capabilities that are
possessed by an organization as a whole as opposed to the
people in it
136
Strategy
Implementation
Strategy
Evaluation (Feed
back control)
Source: Dress(1980)
The feedback approach to control may be appropriate for operational,
day to day activities or for firms competing in highly stable industries.
However, when managers must control and evaluate long-term
strategies, the limitation of relying primarily on feedback control become
quite evident. Feedback control requires waiting for a strategy to be
implemented before obtaining information on how well it is performing.
Long term strategies typically require the commitment of substantial
human and financial resources and have long-term time horizons. This
delays the possibility of corrective action and changing strategic
direction for as much as several years. During this time, a firm may
experience the loss of a key customer, competitor may introduce a new
product that targets the same customer group, or key executives and
technical personnel may leave the firm.
138
Premise control:
In the strategy formulation process, the development of premises
(assumptions) is an important early step that provides a basis for
developing strategies. Premises may include any number of factors that
are deemed important in both the industry environment and the general
environment. Premise control requires systematic and continuous
monitoring of important environmental factors to determine if previously
agreed upon planning premises remain vital. Major charges in premise
may call for a change in strategy.
STRATEGIC SURVEILLANCE
Strategic Surveillance is less focused and more flexible than premise
control. Instead of continually monitoring a few key predetermined
indicators as in premise control, strategic surveillance is much broader.
Its goal is to identify previously undetected critical events before they
become either missed opportunities or serious threats.
Positive:
Development of process engineering techniques leading to significant
reductions in unit variable costs.
Unanticipated success in hiring key research and development
personnel
Defect per unit of output below anticipated levels
Application of a technological innovation across multiple divisions
within the company.
Negative Effects
Turnover/resignation of key executive or technical personnel,
Decline in morals/morale,
Unanticipated delays in major plant completion,
Decline in customer perceptions of product quality.
140
rates,
inflation
rates,
business
cycles,
income
Events,
2.
Implementation control:
Two important components of implementation control are operation
control and strategic implementation control.
Operations Control:
Operations control is concerned with whether or not a firms strategy is
being implemented as planned. It addresses such questions as:
Are short-term profit, growth and efficiency objective being attained?
Are resources being allocated properly?
Is the firm within budget and on schedule?
141
142
Crises are critical situations that occur unexpectedly and threaten the
course of a strategy. Organizations that hope for the best and prepare for
the worst are in a vantage position to handle any crises. Crises
management
follows
certain
steps,
such
as,
signal
detection,
forecasts,
and
excessive
amounts
of
information
misinterpretation.
145
approach is to have both the planning and control functions report to the
same senior staff executive.
feature
of
effective
control
system;
job
insecurity,
147
Such executives are usually not deliberately trying to recast the date,
rather, they simply cannot see the information signals objectively. Such
entrapment makes it difficult for the executives to respond, or even
comprehend, the information signals that the strategic control system is
providing.
148
Strategy Evaluation
Thompson
(1995)
categorized
strategy
evaluation
criteria
into
Appropriateness:
2.
and without any detrimental impart upon our existing products, services
and markets?
Do we have the required skills and competencies, or must we
develop new ones? And is this feasible in the timescale available to
us?
Is there an opportunity for us to create completive advantage?
3)
Desirability:
correlation
between
corporate
governance
and
strategic
Corporate governance can also mean that long term strategic objectives
and plan are established and that the proper management structure
(organization, system and people) is in place to achieve those
150
objectives, while at the same time making sure that the structure
functions to maintain the corporations integrity, reputation and
responsibility to its various constituents.
There were also many companies which are not paying adequate
attention to the basic procedures for shareholders service; for example
many of these companies do not pay adequate attention to redress
investors grievances such as delay in the transfer of shares, delay in
dispatch of share certificates and dividend warrants. Companies also do
not pay sufficient attention to timely dissemination of information to
investors, and also to the quality of such information. Corporate
governance is therefore considered as important instrument for
investors protection and strategy
152
recent high profile financial reporting failures even among firms in the
developed economies.
Good
corporate
management.
governance is
Without
sound
prerequisite
for
sound
corporate governance,
strategic
analysis
of
of
company
has
several
dimensions.
Corporate
153
Responsibility to customers
Responsibility to employee
Responsibility to society
2.41 LEADERSHIP
Cole (2000) defined leadership as a dynamic process at work in group
whereby one individual, over a particular organization context,
influences the other group members to commit themselves freely to
achievement of group task or goals.
a.
LIQUIDITY RATIOS:
Liquidity ratios are used as indicators of a firms ability to meet its shortterm obligations. These obligations include current liabilities, including
currently maturing long-term debt. Current assets move through a
normal/cash cycle of inventories in sales-accounts receivable-cash. The
firm then uses cash to pay off or reduce its current liabilities. The best
known liquidity ratio is the current ratio: current asset divided by current
liabilities. Most analysts suggest a current ration of 2 to 1. A large
current ratio is not necessary a good sign, it may mean that an
organization is not making the most efficient use of assets. The
optimum current ratio will vary from industry to industry with the more
volatile industries requiring higher ratios.
Since slow moving inventories could over state a firms ability to meet
short-term demands, the quick ratio is sometimes preferred to assess a
158
b.
LEVERAGE RATIO:
c.
ACTIVITY RATIO:
d.
PROFITABILITY RATIOS:
Profitability ratios provide insight into the net result of a large number of
policies and decisions chosen by an organization.
Profitability ratios
indicate how effectively the total firm is being managed. The profit
margin for a firm is calculated by dividing net earnings by sales. There is
no variation among industries, but the average for American firm is
approximately 5 percent.
160
161
CHAPTER 3
3.0
METHODOLOGY
In a study of this nature different types of statistical techniques can be
used. Some of the popular techniques found in literature include.
3.4
account
the
effects
of
variables
considered
important
in
Altman (1968) first applied MDA in the study of firms performance; later
Adekanye (1993) employed the technique in developing early warning
models for banks failures. However, compared with other techniques
like Logit, the coefficients of a discriminant function cannot be
interpreted as the marginal impacts of the independent variables. They
however, serve as weights whose magnitude only signifies the relative
importance of the associated variable to the discrimination of the groups
concerned.
163
- S
2
ds
(1)
Where pi is the probability that a company belongs to the nonperforming category and si is theoretical index determined by a set of
explanatory variables.
3.4 THE LOGIT TECHNIQUE:
The difference between Probit and Logit Techniques is in the
distributional assumption about the error term. While the probit
technique assumes cumulative normal distribution, logit technique
164
Pi = F (si) = 1 ..
(2)
(1 esi)
Where Pi and Si are as defined in Probit models.
analysis are alike because the normal and logistic distribution are
similarly shaped. Indeed, since the two distributions differ primarily in
their extreme tails, clear choice between the two specifications would be
difficult to make. In fact, the choice between probit and logit techniques
has no practical consequences with respect to the analyses or results.
The choice is more of a mathematical convenience.
165
b.
c.
f.
i.
This
iii.
It deals only with single objective and it may not be able to handle
more than one set of conditions at a time. Most problems that are
encountered are multi-objective problems, which the linear
programming (LP) model cannot handle in analyzing data.
3.6
REGRESSION TECHNIQUES.
Studenmund A. H (1997) defined regression analysis as a statistical
technique that attempts to explain movements in one variable, the
dependent variable, as a function of movements in a set of other
variables, called the independent or explanatory variables, through the
quantification of a single equation.
C = F (P, Ps, Yd) ...(1.1)
C is the dependent variable and P, Ps, and Yd are the independent
variables. Regression analysis is a natural tool for researchers because
most research propositions can be stated in such single equation
functional forms. Much of economics and business is concerned with
167
Judgments as to causality
(1.3)
DY
B1
DX
169
---- (1.3)
------
(1.4)
Is not linear in the variable if you are to plot equation 1.4 it would be a
quadratic, not a straight line. An equation is linear in the coefficient (if
Bs) appear in their simplest form they are not raised to any power
(other than one), are not multiplied or divided by other coefficients, and
do not themselves include some sort of function (like logs or
exponents); for example, equation 1.3 linear in the coefficient, but not
in equation 1.5.
Y = B0 x X
B1
----- (1.5)
This
In such a
173
3.9
2.
3.
4.
5.
176
NY2 (Y)2
In addition, this study used two tailed test and measures of central
tendency to establish tendencies among the population sample.
3.13
INSTRUMENT USED:
To get a robust data for this research, the researcher employed the use
of both primary and secondary data; the primary data are collected
directly from the field in their original state using the research
questionnaires. This set of data is collected strictly on variables directly
relevant to our research objectives. They are very reliable.
Secondary data on the other hand, were collected from the Nigerian
Stock Exchange (NSE) Kaduna and NSE Fact book.
Both primary and secondary data were acquired through the following
methods.
a.
b.
c.
Field survey: This is the actual and full data collection. This
approach involved the distribution of questionnaires among
selected firms in Kaduna.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
178
Presco Plc.
2.
UTC Plc.
3.
4.
5.
6.
7.
IBTC Plc.
8.
9.
Afriprint Plc.
10.
11.
GTB Plc.
12.
13.
Leventis Plc.
14.
Adswitch Plc.
15.
Using the above data, have generated a robust data for our analysis. It
also aids comparative analysis of our study.
3.15 JUSTIFICATION OF THE SAMPLE SELECTION
Because we used both clustered and simple random sampling
techniques, we were able to overcome sample selection bias.
All the private limited companies selected have a relatively stable
management. Though access to their financial data was not easy to get,
hence we resorted to getting data from fifteen (15) quoted companies.
179
This gave us a total number of thirty (30) companies used for this
study.
180
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1
INTRODUCTION
In this chapter, the researcher made use of both primary and secondary
data for the analysis. Due to the problem faced in generating secondary
data from private limited companies in Kaduna, I resorted to generating
the data from public limited companies based/branch in Kaduna. From
this secondary data, I picked the key financial performance indicators.
These
indicators
are
companies
Shareholders
Fund,
Gross
Earning/Turnover, Profit After Tax and Profit Before Tax. This financial
data was collected over a Five-year period. I therefore, used this
secondary data to run the trend analysis of the companies financial
performance using Excel software.
I also derived from the secondary data the cross-sectional data over a
Five-year period for the regression analysis. From this, I computed the
multiple regression analysis. The result of this multiple regression gave
me the least square model of the study.
181
SHF
GE
PAT
PBT
2001
4,026,177
6,840,527
1,503,694 2,050,323
2002
7,949,982
2003
9,238,755
2004
2005
PBT
40,000,000
PAT
20,000,000
GE
0
20
01
20
02
20
03
20
04
20
05
SHF
The table above shows that in 2001 shareholders fund of the company
was N4, 026,177b. In 2002, it increased to N7, 949,982b that was an
increase of 97.45%. In 2003, the companys shareholders fund
increased to N9, 238,755b that produced an increase of 16.21% as
against the previous year. In 2004, the shareholders fund of the
182
The profit after tax as one of the major indicators of the firms
performance was N1, 503,694b in 2001. In 2002, it increased to N2,
140,355b given a growth rate of 42.34%. In 2003,the companys profit
after tax( PAT) became N3, 211,439b representing a percentage growth
of 50.04% .In 2004, PAT of the company increased to N4,056,557b
given a growth rate of 26.32%.In the year 2005, PAT of the company
became N5, 330, 796 given a growth rate of 31.41%.
The Profit Before Tax (PBT) of the company was N2, 050,323b in 2001.
In 2002, it increased to N3, 107,315 given a growth rate of 51.55%. In
2003, PBT of the company increased to N4, 144,919 given a percentage
growth of 33.39%. In 2004, the PBT of the company became N4,
183
SHF
GE
PAT
PBT
2001
18,170
18,170
5,066
6,715
2002
19,406
19,406
4,776
6,172
2003
27,006
27,006
11,010
14,420
2004
41,605
41,605
11,483
14,853
2005
48,726
48,726
13,234
16,608
PAT
GE
50,000
SHF
0
2001 2002 2003 2004 2005
In the table above, the Shareholders Fund (SHF) of First Bank was
N18,170b in 2001. In 2002, it increased to N19, 406b given a growth
rate of 6.8%. In 2003, the Shareholders Fund of the company grew to
N27, 006b producing a percentage growth of 39.16%. In 2004, the
company SHF became N41, 605b producing a growth rate of 54.06%. In
184
In 2004 the GE of the company became N41, 605b given a growth rate
of 54.06%. In 2005, GE of the company increased to N48,726b
producing a growth rate of 17.12%.
Another indicator measured was the companys PAT (Profit After Tax).
In 2001, the PAT of the company was N5, 066b. In 2002, it increased
to N4, 776b producing a decrease of 5.7%. In 2003, PAT of the
company increased to N11, 010b, producing a growth
rate of
130.52%.
SHF
GE
PAT
PBT
2001
4,086,080
6,087,907
1,689,618 2,225,160
2002
5,185,704
7,553,145
1,478,175 1,945,994
2003
4,832,213
6,279,645
134,960
47,233
2004
6,472,698
7,790,163
903,411
1,264,502
2005
PBT
30,000,000
PAT
20,000,000
GE
10,000,000
SHF
0
2001 2002 2003 2004 2005
The Gross Earning (GE) of the company was N6, 087,907b in 2001. In
2002,the companys GE increased to N7, 533,145b producing a growth
23.74%.In 2003, gross earning of the company decreased to
N6,297,645b producing a decreasing rate of 16.64%. In 2004, the
company had a gross earning of N7, 790,163b given a growth rate of
24.05%. In 2005, the Gross Earning became N12, 735,805b given a
growth rate of 63.48%.
Profit After Tax (PAT): In 2001, PAT of the company was N1, 689,618b.
In 2002, it decreased to N1, 478,175b given a drop rate 12.51%. In
2003, PAT of the company became N134, 960m given a big drop of
90.85%. In 2004, the PAT rose to N903, 441m producing an increase of
569.39%. In 2005, PAT of the company became N2, 509,810b
representing 177.81% growth.
In 2005, the PBT of the company rose again to N3, 514,319 given a
growth rate 177.92%
SHF
T/OVER
PAT
PBT
2001
303,534
578,321
46,678
70,610
2002
319,993
278,609
32,120
49,101
2003
332,162
292,580
30,889
48,094
2004
349,049
355,614
41,847
60,687
2005
370,972
365,829
34,403
52,904
600,000
T/OVER
400,000
PAT
200,000
PBT
20
02
20
03
20
04
20
05
20
0
the SHF of the company rose to N370, 972m producing a growth rate of
6.2%.
Profit After Tax (PAT) as one the companys performance indicators was
N46, 678m in 2001. In 2002, it dropped to N32,120m given a drop rate
of 31.1%. In 2003, PAT of the company dropped again to N30,889m,
given a drop rate of
The Turnover as a proxy for the companys Gross Earning was N578,
321m in 2001. In 2002, it dropped to N278, 609m that was 51.82%. In
2003, the turnover of the company became N292.580 given a drop rate
of 5.0%. In 2004, it increased to N355, 614m representing 21.54%
growth. In 2005, it rose again to N365, 829m given a percentage
growth of 2.87 percent.
189
SHF
T/OVER
2001
2002
2003
2004
2005
2690582
2756216
2558364
1939956
1621715
5860771
7346152
6955590
6237334
5991285
PATvv
PAT
-71984
65633
-96222
-618407
-318239
PBT
-51984
83633
-73722
-224588
-127960
The PAT of the company in 2001 was negative by N71, 984m.In 2002, it
rose to N65, 633m representing 8.8%. In 2003, it became negative by
N96, 222m representing 46.61% drop. In 2004, it became negative by
190
The PBT of the company was negative by N51, 984m in 2001.In 2002, it
became positive by N83, 633m representing a growth rate of 93.01%.
In 2003, PBT of the Company became negative by N73, 722m showing
a 11.85% drop. In 2004,PBT of the company became negative by N224,
558m representing 204.64% drop. In 2005, it became negative by
N127, 960m representing 43.02% drop.
191
SHF
919,493
1,943,784
2,365,356
2,702,830
14,071,924
GE
1,589,555
2,604,378
4,604,378
5,515,086
7,492,855
PAT
77,743
(-55,245)
556,573
637,473
501,515
PBT
116,081
(-17,947)
810,639
951,750
751,033
SHF
GE
5,000,000
PAT
20
05
20
04
20
03
PBT
20
02
20
01
The Profit After Tax of the company in 2001 was N77, 743m. In 2002,
it dropped to N55, 245m representing a 28.9% drop rate. In 2003, the
PAT of the company rose to N556, 573m that became 907.46% growth
rate. In 2004, the company generated N637, 473m PAT that became
14.53% growth. In 2005, Access Bank, profit After Tax was N501, 515m
that was 20.70% drop as against the previous Year.
In 2001, the Profit Before Tax of the company was N116, 081m. In
2002, the Profit Before Tax of the company was negative by N17, 947m,
that was 84.53% drop. In 2003, the PBT of the company rose to N810,
639m that was 4416.85% growth. In 2004, the Access Bank, made
N951, 750m Profit After Tax, that gave 17.40% growth rate in 2005, the
PBT became N751, 033m that translates to 21.08% drop as against the
previous year.
193
SHF
3,779,412
4,934,148
5,880,820
7,837,620
15,659,226
GE
1,671,537
2,513,759
2,933,175
3,072,328
5,004,828
PAT
927,502
1,469,310
1,455,631
1,586,231
2,444,633
PBT
1,208,436
1,905,270
1,881,044
2,049,916
3,321,295
IB TC P LC
20,000,000
S HF
15,000,000
GE
10,000,000
PAT
5,000,000
PBT
05
20
04
20
03
20
02
20
20
01
In 2001, the shareholders fund of IBTC was N3, 779,412b. In 2002, the
SHF of the company became N4, 934,148b representing 30.55%
growth. In 2003, SHF of the company because N5, 880,820b given me
19.18 percent growth.
In 2004, the company had N7, 837,620b SHF balance meaning 33.27
percent growth rate. In 2005, the SHF of the company moved to N15,
659,226b representing 99.79 percent growth rate.
195
SHF
6,725,947
9,305,968
12,651,557
15,674,368
37,789,662
GE
9,023,305
12,118,935
17,844,230
23,931,225
34,913,462
PAT
2,418,243
3,504,013
4,424,186
5,190,768
7,155,926
PBT
2,802,580
3,999,368
5,440,471
6,404,885
9,164,787
196
On Zenith PAT (Profit After Tax) the banks record revealed N2,418,243
billion in 2001. In 2002, it became N3,504,013 billion producing 44.89
percent growth. In 2003, their PAT amounted to N4,424,186 billion that
gave us 26.26 percent growth as against the previous year. In 2004, the
banks PAT rose to N5, 190,768 billion that became 17.34 percent
growth.
The financial report of Zenith Bank shows that its Profit Before Tax was
N2, 802,580 billion in 2001. In 2002, it became N3,999,368 billion given
us a 42.70 percent growth. In 2003, it became N5,440,471 billion that
amounted to 36.03 percent growth as against the previous year. In
2004, PBT of the company became N6,404,885 billion showing a growth
rate of 17.7 percent. In 2005, PAT of the Bank moved to N9,164,787
billion representing 43 percent growth.
197
SHF
233,331
261,091
308,461
418,994
540,919
T/OVER
1,003,036
897,811
950,804
1,002,024
1,241,949
PAT
21,057
35,661
52,084
59,175
98,427
PBT
3,043
35,215
72,386
89,155
153,602
The Profit After Tax of Neimeth in 2001 was N21, 057m. In 2002, it
became N35,661m representing 69.35 percent growth. In 2003, the PAT
of the company became N52, 084m that gave us 46.05 percent
increase. In 2004, PAT of the company increased to N59,175m
representing 13.61 percent growth. In 2005, PAT of the company also
increased to N98.427m that became 66.33 percent growth.
For the companys Profit Before Tax performance in 2001, it was N30,
043m. In 2002, it became N35, 215b representing 13.88 percent
growth. In 2003, PBT of the firm was N72, 386m that gave us 105.55
percent increase. In 2004, PBT of the company was N89,155m that
translated to 23.16. In 2005, PBT of the company jumped to
N153,603m indicating 72.3 percent growth.
199
YEAR
2001
2002
2003
2004
2005
SHF
412,707
505,147
614,396
725,565
813,064
T/OVER
2,288,617
4,210,517
4,243,286
3,786,915
5,414,843
PAT
55,443
149,640
149,233
138,499
146,797
PBT
82,881
320,840
219,396
204,070
212,283
SHF
2,000,000
T/OVER
PAT
0
01 002 003 004 005
0
2
2
2
2
2
PBT
201
SHF
3,976,256
5,103,860
5,067,655
5,958,094
11,623,725
T/OVER
30,922,902
43,306,511
42,250,029
53,563,211
66,805,656
PAT
390,828
1,537,104
254,995
1,370,485
1,451,845
PBT
677,080
2,266,473
590,232
1,887,216
2,024,747
growth. In 2003, the SHF of the company became N5, 067,665b leading
to 0.71% decline. In the year 2004, the companys SHF rose to N5,
958,094b that gives us 17.57% growth rate. In 2005, flour mills Plc,
SHF become N11,623,725b amounting to 95.09 percent growth.
As regards to the Profit After Tax (PAT) of the company in the year
2001,it was N390,828m. In the year 2002 it increased to N1, 537,104b
that becomes 293.39 percent increase. In 2003, PAT of the company
dropped significantly to N254,995m translating to 83.4% decline. In
2004, PAT of the company moved to N1,370,485b showing a
percentage increase of 437.45 percentage.
In
203
YEAR
2001
2002
2003
2004
2005
SHF
37,957
44,627
45,770
28,378
29,982
T/OVER
52,632
97,390
35,992
15,262
55,512
PAT
7,502
11,670
1,143
(-17,392)
6,604
PBT
11,329
19,172
3,520
(-18,321)
7,921
In 2001, the Profit Before Tax of the company was N11, 329m. In 2002,
it moved to N19, 172m representing 69.2 percent growth over previous
years result. In 2003, it dropped to N3, 520m showing a decline of 72.4
percent. In 2004, PBT of the company was negative by N18, 321m
representing 420.48%. In 2005, the PBT if the company rose to N7,
921m translating to 56.77% against previous year.
205
SHF
1,165,055
1,793,365
1,918,558
2,274,900
2,315,582
T/OVER
1,236,626
1,369,364
2,128,304
2,346,068
2,347,611
PAT
217,264
153,596
375,193
606,342
340,682
PBT
225,349
131,378
407,615
672,242
453,620
In 2001, Shareholders Fund of Presco Plc was N1, 165, 055 billion. In
2002, the companys SHF rose to N1,793,3656m representing 54
percent growth. In 2003, SHF of the company became N1,918,558
billion that means 6.9 percent growth. In 2004, the company SHF
became N2,274,900 billion representing 18.7 percent growth over the
previous years performance. In 2005, SHF of the company became
N2,315,582 billion showing 1.78 percent growth.
Presco Plc had N217,264m as Profit After Tax in 2001. In 2002, its PAT
dropped to N153,596m representing a drop of 29.3 percent. In 2003, its
PAT rose to N375,193m showing 144.3 percent growth. In 2004, PAT of
the company rose again to N600,342m representing 61.6 percent
growth over the previous years result in 2005, PAT of the company
dropped to N340,682m that IS 43.8 percent decline.
207
SHF
2,175,889
2,357,769
2,813,535
3,433,429
3,676,466
PAT
36,310
59,565
186,180
240,992
382,370
PBT
37,534
132,714
305,665
325,825
593,301
T/OVER
4,051,668
4,421,205
5,608,501
6,120,757
7,035,811
The PAT of the company was N36,310m for the year 2001. In 2002, it
rose to N59,565m representing a growth rate of 64.3 percent. In 2003,
the PAT of the company rose to N186,180m that translates to 212.6
percent growth. In 2004, the company recorded N240,992m PAT
208
The Profit Before Tax of the company was N37,534m in 2001. In 2002,
it grew to N132,714 representing a growth rate of 253.58 percent. In
2003, PBT of the company moved to N305,665m representing to 130.3
percent growth. In 2004, the companys PBT became N325, 825m that
means 6.6 percent growth. In 2005, PBT of the company increased to
N593,301m that produced 82.1 percent increase over the previous
years performance.
The Turnover of the company in 2001 was N4, 051,668 billion. In 2002,
it became N4, 421,205b representing 9.1 percent growth. In 2003, the
turnover of the company became N5, 605,501b showing 26.85 percent
growth. In 2004, the company recorded a Turnover of N6, 120,757b
representing 9.13 percent growth. In 2005, Leventis as a company
recorded N7,035,811b as Turnover representing 14.95 percent growth.
209
SHF
4,109,065
4,167,664
3,905,551
6,672,800
5,570,611
T/OVER
15,203,511
19,003,356
23,693,923
28,976,997
33,390,940
PAT
2,164,114
1,571,918
1,870,258
2,167,249
1,616,457
PBT
1,585,738
2,053,089
2,778,155
2,270,047
2,281,416
UNILEVER PLC
negative
financial
performance
indicators
applying
turnaround,
REGRESSION ANALYSIS
The study adopted the use of regression techniques to analyze the
relative impact of the quantitative variables used in measuring
Companies performance. Here, we adopted again the use of key
selected performance variables. Our regression model therefore
becomes:
Y= bo + b1PAT + b2PBT + b3SHF + ei
Where:
Y
=
PAT =
PBT =
SHF =
ei
errorterm
212
Table 4.16:
YEAR
GE
SHF
PAT
PBT
2001
83,428,359
34,659,655
9,489,108
11,123,172
2002
116,618,629
76,648,724
12,574,994
16,037,787
2003
133,661,043
52,560,059
12,909,996
16,405,958
2004
160,428,996
66,153,264
16,394,105
20,785,525
2005
206,678,393
145,611,006
21,715,246
28,447,413
TOTAL
700,815,420
375,632,708
73,083,449
92,799,855
Researchers computation.
Table 4.17 From 4.16 above converted to the nearest billion (N).
YEAR
GE (X1)
PBT (X4)
2001
83.4
34.7
9.4
11.1
2002
116.6
76.6
12.6
16.0
2003
133.7
52.6
12.9
16.4
2004
160.4
66.1
16.4
20.8
2005
206.7
145.6
21.7
28.4
213
Table 4.18
X1
X2
X3
X4
Xi2
X22
X32
X42
X1X2
X1X3
X2X3
X1X4
X2X4
X3X4
83.4
34.7
9.4
11.1
6955.56
1204.09
88.36
123.21
2893.98
783.96
326.18
925.74
385.17
104.34
116.6
76.6
12.6
16.0
13595.56
5867.56
158.76
256
8931.56
1469.16
965.16
1865.6
1225.6
201.6
113.7
52.6
12.9
16.4
17875.69
2766.76
166.41
268.96
7032.62
1724.73
678.54
2192.68
862.62
209.92
160.4
66.1
16.0
20.8
25728.16
4369.21
268.96
432.64
10602.44
2630.56
1084.04
3336.32
1374.88
341.12
206.7
145.6
21.7
28.4
42724.89
21199.36
470.89
806.56
30095.52
4485.39
3159.52
5870.28
4135.04
616.28
X1=
X2=
X3=
X4=
X12=
X22=
X32=
X42=
X1X2=
X1X3=
X2X3=
X1X4=
X2X4=
X3X4=
700.9
375.6
73.0
106879.86
35406.98
1153.38
1887.37
59556.12
11093.8
6213.44
14190.62
7983.33
1473.26
92.7
214
. (1)
ccxv
From the above results, I now derived the least square model as;
Y = 0.8588 + 0.1680b2 + 8.582b3 + 0.0752b4 ..(5)
4.4
Table 4.19:
RANKING OF RELATIVE IMPACT OF THE VARIABLES ON THE
DEPENDENT VARIABLES
VARIABLES
RANKING
Profit After Tax
8.582
0.1680
0.0752
From the above, it is obvious that Profit After Tax has more relative
impact on the Gross Earning (The impact could be as result of the cross
sectional generation of the data used). The results shown by the ranking
ccxvi
means that the Share Holders Fund has more impact than Profit After
Tax which is 0.0752.
4.5 TEST OF HYPOTHESES
Hypotheses 1
There is no significant relationship between financial ratio and business
strategy.
Table 4.20
Summary of responses on financial ratios based on educational
qualification and job title.
Group
Responses
Row Total
Yes
No
Educational qualification
10
18
Job Title
14
10
24
Column Total
24
18
42
Table 4.21
Result of calculated expected frequency based on observed frequency for
multiple sample case.
Cell
Observed frequencies
Expected
frequencies
1.
10
10.29
2.
7.71
3.
14
13.71
4.
10
10.29
ccxvii
Table 4.22
Summary of resulted of calculated chi-square
Cell
O-E
(O-E)2
(O-E)2/E
10
10.29
-0.29
0.084
0.008
7.71
0.29
0.084
0.010
3.
14
13.71
0.29
0.84
0.006
10
10.29
-0.29
0.084
0.008
X2=0.032
Table 4.23
Summary of chi-square analysis on financial ratio responses based on
educational qualification and job title
Group
Responses
Yes
No
EQ
10
18
JT
14
10
24
24
18
42
Cal X2 df
Crit X2
0.032
3.841
ccxviii
HYPOTHESES 2
There
is
no
significant
relationship
between
firms
production
Table 4.24
Summary of responses on production effectiveness based on educational
qualification and job title.
Group
Responses
Row Total
Yes
No
Educational qualification
11
10
Job Title
12
23
19
Column Total
ccxix
21
21
42
Table 4.25
Result of calculated expected frequency based on observed frequency for
multiple sample case.
Cell
Observed frequencies
Expected frequencies
1.
11
10.5
2.
10
9.5
3.
12
10.5
4.
9.5
Table 4.26
Summary of resulted of calculated chi-square
Cell
O-E
(O-E)2
(O-E)2/E
11
10.5
0.5
0.25
0.024
10
9.5
0.5
0.25
0.026
3.
12
10.5
1.5
2.25
0.214
9.5
-0.5
0.25
0.263
X2=0.527
ccxx
Table 4.27:
Summary of chi-square analysis on production effectiveness responses
based on educational qualification and job title
Group
Responses
Yes
No
EQ
11
10
21
JT
12
21
23
19
42
Cal X2 Df
Crit X2
0.527
3.841
Responses
Row Total
Yes
No
Educational qualification
11
Job Title
17
14
31
Column Total
23
19
42
ccxxi
Table 4.29:
Result of calculated expected frequency based on observed frequency for
multiple sample case.
Cell
Observed frequencies
Expected frequencies
1.
6.024
2.
4.976
3.
17
16.976
4.
14
14.024
Table 4.30:
Summary of resulted of calculated chi-square
Cell
O-E
(O-E)2
(O-E)2/E
6.024
-0.024
0.001
0.00016
4.976
0.024
0.001
0.00020
3.
17
16.976
0.024
0.001
0.000058
14
14.064
-0.024
0.001
0.00071
X2=0.001
ccxxii
Table 4.31
Summary of chi-square analysis on client satisfaction responses based on
educational qualification and job title
Group
Responses
Yes
No
EQ
11
JT
17
14
31
23
19
42
Cal X2 Df
Crit X2
0.001
3.841
HYPOTHESES 4
There is significant between research and business strategy
Table 4.31
Summary of responses on Client satisfaction based on educational
qualification and job title.
Group
Responses
Row Total
Yes
No
Educational qualification
Job Title
15
12
22
20
Column Total
ccxxiii
15
27
42
Table 4.32
Result of calculated expected frequency based on observed frequency for
multiple sample case.
Cell
Observed frequencies
Expected frequencies
1.
7.86
2.
7.14
3.
15
14.14
4.
12
12.86
Table 4.33
Summary of resulted of calculated chi-square
Cell
O-E
(O-E)2
(O-E)2/E
7.86
-0.86
0.74
0.094
7.14
0.86
0.74
0.104
3.
15
14.14
0.86
0.74
0.052
12
12.86
-0.86
0.74
0.058
X2=0.308
ccxxiv
Table 4.34
Summary of chi-square analysis on research responses based on
educational qualification and job title
Group
Responses
Yes
No
EQ
15
JT
15
12
27
20
42
22
Cal X2 df
Crit X2
0.308
3.841
HYPOTHESIS 5
There
is
no
significant
relationship
between
corporate
social
Responses
Row Total
Yes
No
Educational qualification
Job Title
14
13
Column Total
22
20
ccxxv
15
27
42
Table 4.36
Result of calculated expected frequency based on observed frequency for
multiple sample case.
Cell
Observed frequencies
Expected frequencies
1.
7.86
2.
7.14
3.
14
14.14
4.
13
12.86
Table 4.37
Summary of resulted of calculated chi-square
Cell
O-E
(O-E)2
(O-E)2/E
7.86
0.14
0.019
0.002
7.14
-0.14
0.019
0.003
3.
14
14.14
0.14
0.019
0.001
13
12.86
0.014
0.019
0.001
X2=0.007
ccxxvi
Table 4.38
Summary of chi-square analysis on corporate social responsibility based
on educational qualification and job title
Group
Responses
Yes
No
EQ
15
JT
14
13
27
20
42
22
Cal X2 df
Crit X2
0.007
3.841
ccxxvii
CHAPTER 5
DISCUSSION Of RESULTS
5.1 LINK BETWEEN PERFORMANCE AND STRATEGY
Jaunch and Glueck (1998) stated that designing strategy involves analysis
and diagnosis of all the business entity. This analysis assists in
determining the environmental factors, opportunities, internal strength
and weakness that affect the company.
ccxxviii
From the result generated about 38.1% of the respondents agreed that
their company have strategic business unit. 52.28% of the respondents
said their companies do not have strategic unit and 9.25 % did not know
any thing about strategic unit in their organization. What this shows is
that greater numbers of the company staff do not know the direction of
the company.
ccxxix
9.52% of the
participants said they did not play any role. Looking at the response
about 42.86 % of the staff were undecided, may be because they do not
know anything about strategy.
From survey also 80.95% of the staff said that understand key
management ratio and could also interpret them. This could be as a result
of their educational qualification. Only about 14% said they could not
interpret them.4.76% stated they do not know anything about them.
What this statistics show is that there is a correlation between
understanding ratios analysis in business strategy and interpreting the
ratio.
ccxxx
Our survey also revealed that 85.71% of the company has 5-year
financial statements. Inability of the companies to open up to researcher
could be an internal management decision. Only about 4.76% of the staff
of the companies said No to the question. 9.23% of respondent claims
they do not know anything about the companys 5-year financial
statement. These could be as a result of their educational qualification or
lack of knowledge about how companies are run.
ccxxxi
Also the same group of respondents (14.29%) started they do not know
how to implement strategy successfully. What this seems to explain is
that some of them in leadership position or educational exposure lack
knowledge of strategic management. Also 23.84% of the respondent
were undecided similar to the above responses, the study gathered that
71.43% of the respondents who said yes on knowledge of how to
implement strategy successfully also said they consider company
structure, systems, style, quality of staff, shared values, skills, leadership
as necessary factor for effective strategy implementation.
The same group of respondents (4.76%) stated that they do not know or
understand factors necessary for effective strategy implementation. The
survey also revealed that 23.31% of the respondents stated that they
know nothing about effective strategy implementation factor. This could
be as a result of their lack of knowledge about what strategy is.
ccxxxii
ccxxxiii
Looking at the responses based on job title the researcher observed that
61.90% of the respondent agreed that their companies have a vision
statement about 23.81% stated no to the question. 9.52% of the
respondent did not know anything about vision statement. If you
compare this with the responses based on educational qualification, you
realize that staff members with high educational qualification and job title
are correlated vis--vis business strategy and performance.
From our survey generated 76.19% of people with similar job title agreed
that they know about the company 5-year vision. Comparing this with the
response based on educational qualification we found that the same
percent of response agreed that their company has a 5-year vision.
ccxxxiv
Responses on whether firms have strategic unit revealed that only about
90.48% of our selected companies have strategic business unit. 4.76%
responded no, and the percentage is undecided.
From our survey it is observed that 52.38% said they played active role in
strategy development. This is close to the number of people (57.14%)
who participated in strategy development of their company. About
42.86% stated that they do not play any role, may be because they were
not given a role. 4.76% of the respondents were undecided.
It is also observed that 4.76% said that they consider other variable like
return on investment in measuring performance. 71.63% said they do not
consider other variables. Only about 23.81% were undecided.
Our responses reviewed that the number of company that have 5-year
financial statement responses are 52.38% whereas 23.81 and 23.81 said
no and undecided respectively.
ccxxxv
is
90.48%
for
Yes
and
4.76%
said
No
and
undecidedrespectively.
remaining
4.76%
were
undecided.
Results generated based on job title, also show 58.33% of the
respondents stating that they their companies consider financial ratios in
measuring performance. 33.33% of the respondents stated they do not
consider financial ratios in measuring performance. This could be as a
result of their inability to understand the implications of considering such
variables in measuring performance. 8.33% of the respondents were
undecided
ccxxxvii
used found it
difficult
to understand basic
strategic
Also our study show that more than 80% of the junior staff in the
companies selected do not know anything about the direction of their
companies not to talk of the companies strategies.
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Koch (2000) listed the following as the major problem associated with
business strategies:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
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position at one time or over a relatively short period of time. To make any
substantial progress in business requires innovation and the creation of
new market segments ecosystem, because they involve the satisfaction
of human needs by other human being and the organization of a separate
and distinctive way of doing so. Creating white space in business, and
delivering a new product or service in that space is sometimes (but more
than 99 percent of the time) the work of a loose network of individual.
Jauch and Glueck (1998), that you are likely to perform better in your
function, regardless of your level in the organization, if you know the
direction in which the organization is going. As a manager of a subunit,
you would like to know how what you do fits into the broader picture. If
you know how your functions contribute, you should be able to do a
better job of helping the organization reach its objectives. Further more,
If you understand why those were established, you can implement them
more effectively. If you understand how your job relates to others in the
organization, you will be in a better position to effectively work with peers
when cooperation is called for, and compete for resources when the
times comes.
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CHAPTER 6
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS.
6.1 SUMMARY OF FINDINGS AND CONCLUSIONS
The robust analysis carried out in the course of this study revealed a lot
of findings. Some of the findings are literature based; some are
methodological while some are analytical based. The results from our
analysis revealed that there is a correlation between staff job title
(corporate level staff) and knowledge of business strategy and
implementation. This was clearly illustrated by the results generated from
our survey. This is in line with the principle of business strategy as
corporate level issues.
The conclusion is that most staff at the corporate level have adequate
knowledge of strategy, and are the ones that design business strategy.
They are also in a better position to understand and interpret strategic
management issues or process.
The conclusion is that some of the companies selected may not have
sound financial statement or at the extreme evades appropriate tax
payment.
Another finding very common is that about 85% of the companies do not
have anything like strategic department or unit. Similarly, they do not
even have internal consultants. What it means is that contrary to some of
their responses, we found out that some of their responses are not
consistent with what we found on ground.
The conclusion we deduced from this finding is that most business
failures could be attributed to lack of strategic unit or lack of consulting of
external consultants for the purpose of designing or creating strategy for
them.
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We also found out that some of the companies selected do not have good
company structural set up. For instance, in some company one person
was the manager, accountant, lineman, thus making it difficult to pin
down their duties. Jauch and Glueck (1998) stated that, good structure
is inseparably linked to strategy. This is also in agreement with Porters
7- S theory.
We also found that most studies on strategy adopted state static model
instead of dynamic and time-bound model. The problem could be as a
result of poor data or inadequate data. The conclusion is that these
studies could not capture the real life business uncertainties.
6.2 RECOMMENDATION
In the course of our research we examined firm performance by
assessing some key variables that influence firms strategy development.
Our
findings
and
conclusions
therefore
informed
the
following
recommendations.
Also, every company should have a strategic business unit or employ the
services of external consultants. These consultants will help them design
road maps for their company. In addition, companies should keep upto-date and adequate financial statements. This is because the basis for
any
sound
strategy
is
the
understanding
of
the
financial
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The researcher also recommends the effective use of ratio in the analysis
of companies to strengthen the understanding of their performances
thereby crafting suitable strategy.
There is need for more inclusive studies that will involve more sample
size, and the time series/secondary data should be extended to more
than five years to reduce biased ness of the results.
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REFERENCES
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